Statistics office forecasts bleak GDP growth of 5%; hopes up for a rate cut by RBI.

NEW DELHI: The statistics office has forecast GDP growth of just 5% this year, surprising many and piling on pressure on the finance minister to deliver a growth-inducing budget and the central bank for more rate cuts soon.

The Central Statistical Organisation's (CSO) forecast of a decadelow growth rate, bleaker than estimates of the finance ministry, Reserve Bank of India (RBI) and most private economists, had the finance ministry playing down the number while others said it would most likely be revised upwards.

RBI Governor Duvvuri Subbarao said he would take into account the latest forecast while announcing the mid-quarter monetary policy review on March 19, even though he declined to discuss any possible rate action.

Thursday's forecast by CSO, whose data quality and accuracy of forecasts have been questioned in the past, is based largely on economic activity up to November, a period during which the investment climate and sentiment was at its worst. "Since then (November), leading indicators have turned up, suggesting some hope that we will end the year on a better note," the finance ministry said in a statement.

Former RBI governor and now chief of the Prime Minister's Economic Advisory Council, C Rangarajan, also played down the CSO figure, noting that he expected it to be at least 5.5%. "The current estimates are made on the behaviour of the economy in the first half, when the economy was depressed," he said.

The finance ministry, which has spearheaded a string of economic reforms and tried hard to avert a sovereign ratings downgrade, has scaled down its own growth projection to 5.7% for this fiscal year, from 7.6%.

As it sought to play down CSO's growth estimate, concerns grew whether it would be able to meet its revised fiscal deficit target of 5.3% of GDP, a number Finance Minister P Chidambaram has vowed to meet at all costs.

CSO has forecast nominal growth at 11.7% this year while the ministry's fiscal deficit target is based on a 14% nominal growth. The upcoming budget on February 28 is likely to be based on CSO's figures. Among private economists, too, the view was that the final number would most certainly be revised.

"This number, 5% GDP growth, will definitely be revised... One's estimate is based on data from the last eight months and estimate for the last four months is bit of guesswork anyway," said Samiran Chakraborty, head of research at Standard Chartered Bank in India.

In the markets, the reaction to the CSO figure was muted. The benchmark Sensex fell 0.3% to 19,580.32. The yield on the 10-year government bonds rose 2 basis points to 7.89%. The rupee ended 8 paise lower at 53.23 to the US dollar.


Source : timesofindia.indiatimes.com